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Taxes
 12 Months Ended
Dec. 31, 2013
Taxes  
Taxes
14. Taxes

 

Loss from continuing operations before taxes is comprised of the following components for the years ended December 31, 2011, 2012 and 2013 (in $000s):

 

    Year ended
December 31,
2011		     Year ended
December 31,
2012		     Year ended
December 31,
2013		  
                   
Domestic   $ 904   $ (2,009 )   $ 1,132  
Foreign     (16,072 )     (13,098 )     (13,012 )
Loss from continuing operations before taxes   $ (15,168 )   $ (15,107 )   $ (11,880 )

 

The benefit for income taxes from continuing operations consists of the following (in $000s):

 

    Year ended
December 31,
2011		     Year ended
December 31,
2012		     Year ended
December 31,
2013		  
                   
Current — domestic   $ —     $ —     $ (25)  
Current — foreign   565       1,014       1,695  
Current — total     565       1,014       1,670  
Deferred — domestic     —       337       —  
Income tax benefit   $ 565     $ 1,351     $ 1,670  

 

The Company has incurred a taxable loss in each of the operating periods since incorporation. The income tax credits of $0.6 million, $1.4 million and $1.7 million for the years ended December 31, 2011, 2012 and 2013, respectively, represent UK research and development (“R&D”) tax credits receivable against such expenditures in the United Kingdom that are refundable.

 

A reconciliation of the (benefit) provision for income taxes from continuing operations with the amount computed by applying the statutory federal tax rate to loss from continuing operations before income taxes is as follows (in $000s):

 

    Year ended
December 31,
2011		     Year ended
December 31,
2012		     Year ended
December 31,
2013		  
                   
Loss from continuing operations before taxes   $ (15,168 )   $ (15,107 )   $ (11,880 )
                         
Income tax expense computed at statutory federal tax rate     (5,157 )     (5,136 )     (4,039 )
Disallowed expenses and non-taxable income     (141 )     176     62  
Loss surrendered to generate R&D credit     1,372       3,025       4,833  
Additional research and development tax relief     (2,260 )     (2,656 )     (4,418 )
Change in valuation allowance     2,952       (579 )     6,302  
Research and development tax credit rate difference     —       —       —  
Research and development true up     —     —     (4,530 )
Foreign items, including change in tax rates, and other     2,669       3,819       120
    $ (565 )   $ (1,351 )   $ (1,670 )

 

Significant components of the Company’s deferred tax assets are shown below (in $000s):

 

    December 31,  
    2012     2013  
             
Net operating loss carryforwards   $ 42,399     $ 46,144  
Depreciation, amortization and impairment of property and equipment     1,654       67  
Stock options     1,451       1,651  
Accrued expenses     3,389       3,373  
Research and development credits     —       4,530  
Other     45       82  
Translation adjustment     1,277       660  
Deferred tax assets     50,215       56,507  
Valuation allowance for deferred tax assets     (50,215 )     (56,507 )
Net deferred taxes   $ —     $ —  

 

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes. A valuation allowance has been established, as realization of such assets is uncertain.

 

The Company’s management evaluated the positive and negative evidence bearing upon the realizability of its deferred assets, and has determined that, at present, the Company may not be able to recognize the benefits of the deferred tax assets under the more likely than not criteria. Accordingly, a valuation allowance of approximately $56.5 million has been established at December 31, 2013. The valuation allowance increased by approximately $6.3 million in 2013.

 

In certain circumstances, as specified in the Tax Reform Act of 1986, due to ownership changes, the Company’s ability to utilize its NOL carryforwards may be limited. The benefit of deductions from the exercise of stock options is included in the net operating loss (“NOL”) carryforwards. The benefit from these deductions will be recorded as a credit to additional paid-in capital if and when realized through a reduction of cash taxes. As of December 31, 2012 and 2013, the Company had federal NOLs of $19.2 million and $22.1 million and foreign NOLs of $153.4 million and $162.4 million, respectively. The Company has federal NOLs that will start to expire in 2027, and state NOLs totaling $21.3 million will start expiring in 2023. The Company’s foreign NOL’s do not expire under UK tax law.

 

Utilization of the NOLs may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Company completed a Section 382 study as of December 31, 2013 noting there was no ownership change since the Company’s formation. Management has evaluated all significant tax positions at December 31, 2012 and 2013 and concluded that there are no material uncertain tax positions. The Company would recognize both interest and penalties related to unrecognized benefits in income tax expense. The Company has not recorded any interest and penalties on any unrecognized tax benefits since its inception.

 

Tax years 2011, 2012 and 2013 remain open to examination by major taxing jurisdictions to which the Company is subject, which are primarily in the United Kingdom and the United States, as carryforward attributes generated in years past may still be adjusted upon examination by the United Kingdom’s H.M. Revenue & Customs, the Internal Revenue Service (“IRS”) or state tax authorities if they have or will be used in a future period. The Company is currently not under examination by the IRS or any other jurisdictions for any tax years.